Are ophthalmic (eye) surgical suture materials exempt from New York sales tax as prosthetic aids or as drugs/medical supplies?

Plain-English summary

Alcon Laboratories, Inc. sells ophthalmic surgical products, including intraocular lenses (which replace cataract-afflicted lenses) and suture materials used to close the surgical incision. The sutures are made of silk, dacron/nylon, polypropylene, and polyester, are non-dissolving, and are designed to remain permanently in the eye (occasionally removed if complications arise). Alcon asked whether these sutures are exempt under Tax Law § 1115(a)(3) (drugs, medicines, medical equipment and supplies) or § 1115(a)(4) (prosthetic aids and artificial devices).

The Department's holdings:

• Not prosthetic aids (§ 1115(a)(4)). In Dental Society of the State of New York v. State Tax Commission, the Appellate Division held that cavity-filling materials — though implanted in patients' teeth — are not prosthetic aids exempt under § 1115(a)(4). Ophthalmic sutures are used similarly (implanted), so they likewise do not qualify as prosthetic aids.
• But they are exempt medical supplies (§ 1115(a)(3)). The sutures qualify under the § 1115(a)(3) exemption for drugs/medicines and medical supplies. So the sale is exempt — except where sold to a buyer purchasing them at retail for use in performing medical and similar services for compensation (the "retail-for-compensation" carve-out built into § 1115(a)(3)).
• Sales to hospitals/exempt organizations. A sale to a hospital or other organization qualifying under § 1116(a) is exempt even if that entity uses the supplies in performing medical services for compensation.

What this means for you

Two different medical exemptions, two different tests

New York has separate exemptions for prosthetic aids/artificial devices (§ 1115(a)(4)) and for drugs, medicines, and medical supplies (§ 1115(a)(3)). An implanted item that stays in the body is not automatically a "prosthetic aid" — under Dental Society, implanted filling/closure materials are treated as supplies, not artificial devices.

The § 1115(a)(3) exemption has a "for-compensation" catch

Section 1115(a)(3)'s exemption for medical equipment and supplies does not apply when the item is bought at retail for use in performing medical services for compensation. So a provider buying sutures to use in for-fee procedures generally can't claim the exemption for that purchase — but the manufacturer's sale into distribution, and sales to non-compensation buyers, remain exempt.

Hospitals and other § 1116(a) organizations override the catch

If the buyer is a hospital or other § 1116(a) exempt organization, the sale is exempt regardless of the for-compensation carve-out. Getting a proper exempt-organization certificate matters here.

Common questions

Q: Are surgical sutures taxable in New York?
A: Generally no — they qualify as exempt medical supplies under § 1115(a)(3). The main exception is a purchase at retail for use in performing medical services for compensation.

Q: Aren't permanently implanted sutures "prosthetic aids"?
A: No. Following Dental Society v. State Tax Commission, implanted closure materials are not prosthetic aids under § 1115(a)(4), even though they stay in the body.

Q: Does a hospital pay tax on sutures it uses in paid procedures?
A: No. Sales to a hospital or other § 1116(a) exempt organization are exempt even when the organization uses the supplies in performing medical services for compensation.

Citations and references

Statutes:

• Tax Law § 1115(a)(3) — exemption for drugs, medicines, medical equipment and supplies, with the carve-out for items purchased at retail for use in performing medical services for compensation.
• Tax Law § 1115(a)(4) — exemption for prosthetic aids, artificial devices, and component parts.
• Tax Law § 1116(a) — exempt organizations (e.g., hospitals), whose purchases are exempt even if used in for-compensation services.

Case applied:

• Dental Society of the State of New York v. State Tax Commission, 110 A.D.2d 988 — implanted cavity-filling materials are not prosthetic aids under § 1115(a)(4).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_54s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (54)S
Sales Tax
August 2, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910419A

On April 19, 1991 a Petition for Advisory Opinion was received from Alcon Laboratories,
Inc., 6201 S. Freeway T7-2, Ft. Worth, Texas 76134.
The issue raised by Petitioner, Alcon Laboratories, Inc., is whether its sales of ophthalmic
suture materials are exempt from the sales tax under Sections 1115(a)(3) or 1115(a)(4) of the Tax
Law.
Petitioner sells ophthalmic surgical products which includes intraocular lenses which replace
lenses afflicted with cataracts and suture materials used to close the incision. These sutures are made
of silk, dacron nylon, polypropylene, and polyester, are non-dissolving and are designed to remain
permanently in the eye. In some situations the sutures are removed if complications are encountered.
Section 1115(a)(3) of the Tax Law provides an exemption from sales tax for:
Drugs and medicines intended or use, internally or externally, in the cure,
mitigation, treatment or prevention of illnesses or diseases in human beings, medical
equipment (including component parts thereof) and supplies required for such use or
to correct or alleviate physical incapacity, and products consumed by humans for the
preservation of health but not including cosmetics or toilet articles notwithstanding
the presence of medicinal ingredients therein or medical equipment (including
component parts thereof) and supplies, other than such drugs and medicines,
purchased at retail for use in performing medical and similar services for
compensation.
Section 1115(a)(4) of the Tax Law provides an exemption from sales tax for:
Prosthetic aids, hearing aids, eyeglasses and artificial devices and component
parts thereof purchased to correct or alleviate physical incapacity in human beings.
The Appellate Division in Dental Society of the State of New York v. New York State Tax
Commission, 110 A.D.2d 988 held that cavity filling materials, although implanted in patients' teeth,
were not prosthetic aids exempt from sales tax under Section 1115(a)(4) of the Tax Law. The use
of ophthalmic suture materials is similar to the use of the dental materials and as such do not qualify
for the exemption under said Section.

-2­
TSB-A-91 (54)S
Sales Tax
August 2, 1991

However, Petitioner's ophthalmic suture materials qualify for the purposes of the exemption
contained in Section 1115(a)(3) of Tax Law. Therefore the sale of such supplies to other than those
purchasing the materials at retail for use in performing medical services for compensation is exempt
from sales tax. Furthermore the sale of such materials to a hospital or other organization qualifying
for exemption under Section 1116(a) of the Tax Law would be exempt from the imposition of sales
tax even if such entity was using the supplies in performing medical services for compensation.

DATED: August 2, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.